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Posted March 29th, 2016

When Should a Charity Sue?

By Jon Tidd

Gavel

There’s an old refrain among development officers: “We’d never sue over a gift.” Which suggests not suing is simply a matter of policy.

In some states in some situations, however, the law may require a charity to pursue legal recourse. For example, Donor pledges a large amount to Charity for the construction of a new building. Donor and Charity agree the building shall be named for Donor. Work begins on the building. Donor makes a payment on his pledge. Then, unexpectedly, Donor dies. Donor’s son, who is named Donor’s executor, subsequently renounces the pledge and refuses to pay it, even though Donor’s estate is fully capable of paying the pledge balance.

In this situation, the state attorney general may require the charity to seek payment of the pledge, in court, if necessary. The attorney general’s view may be that [a] the pledge was enforceable and [b] the charity cannot simply give up its rights under the pledge.

The example just given is clear-cut. Other situations are murky. For example, some years ago, Donor set up a charitable remainder trust intending that the trust would provide a sizable benefit to her college. Donor died recently, and the college has just learned the trust, which had a fairly high payout rate, is basically depleted. The college also has learned that the trustee made some “questionable” investment decisions adversely affecting the trust.

In this situation, if the college cannot show with crystal clarity misbehavior on the trustee’s part, the college may have no legal recourse against the trustee, and the state attorney general may have no interest in the matter.

If your organization is facing some such situations, before it leaves money on the table, contact appropriate counsel.

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